CLASS

XI

CBSE-i

UNIT-9

Accounts from
incomplete Records
Students Material

Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110 092 India

CBSE-i

Accounts form
incomplete Records
Students Material
CLASS

XI
UNIT-9

Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110 092 India

The CBSE-International is grateful for permission to reproduce

and/or translate copyright material used in this publication. The
acknowledgements have been included wherever appropriate and
sources from where the material may be taken are duly mentioned. In
case any thing has been missed out, the Board will be pleased to rectify
the error at the earliest possible opportunity.
All Rights of these documents are reserved. No part of this publication
may be reproduced, printed or transmitted in any form without the
prior permission of the CBSE-i. This material is meant for the use of
schools who are a part of the CBSE-International only.

Preface
Education plays the most important role in acquiring professional and social skills and a positive attitude to face
the challenges of life. Curriculum is a comprehensive plan of any educational programme. It is also one of the
means of bringing about qualitative improvement in an educational system. The Curriculum initiated by Central
Board of Secondary Education -International (CBSE-i) is a progressive step in making the educational content
responsive to global needs. It signifies the emergence of a fresh thought process in imparting a curriculum which
would restore the independence of the learner to pursue the learning process in harmony with the existing
personal, social and cultural ethos.
The CBSE introduced the CBSE-i curriculum as a pilot project in few schools situated outside India in 2010 in
classes I and IX and extended the programme to classes II, VI and X in the session 2011-12. It is going to be
introduced in classes III, VII and for Senior Secondary classes with class XI in the session 2012-13.
The Senior Secondary stage of education decides the course of life of any student. At this stage it becomes
extremely important for students to develop the right attitude, a willingness to learn and an understanding of the
world around them to be able to take right decisions for their future. The senior secondary curriculum is expected
to provide necessary base for the growth of knowledge and skills and thereby enhance a student's potential to face
the challenges of global competitiveness. The CBSE-i Senior Secondary Curriculum aims at developing desired
professional, managerial and communication skills as per the requirement of the world of work. CBSE-i is for the
current session offering curriculum in ten subjects i.e. Physics Chemistry, Biology, Accountancy, BusinessStudies, Economics, Geography, ICT, English, Mathematics I and Mathematics II. Mathematics at two levels
caters to the differing needs of students of pure sciences or commerce.
The Curriculum has been designed to nurture multiple intelligences like linguistic or verbal intelligence, logicalmathematical intelligence, spatial intelligence, sports intelligence, musical intelligence, inter-personal
intelligence and intra-personal intelligence.
The Core skills are the most significant aspects of a learner's holistic growth and learning curve. The objective of
this part of the core of curriculum is to scaffold the learning experiences and to relate tacit knowledge with formal
knowledge. This involves trans-disciplinary linkages that would form the core of the learning process.
Perspectives, SEWA (Social Empowerment through Work and Action), Life Skills and Research would be the
constituents of this 'Core'.
The CBSE-i Curriculum evolves by building on learning experiences inside the classroom over a period of time.
The Board while addressing the issues of empowerment with the help of the schools' administering this system
strongly recommends that practicing teachers become skilful and lifelong learners and also transfer their learning
experiences to their peers through the interactive platforms provided by the Board.
The success of this curriculum depends upon its effective implementation and it is expected that the teachers will
make efforts to create better facilities, develop linkages with the world of work and foster conducive environment
as per recommendations made in the curriculum document.
I appreciate the effort of Dr.Sadhana Parashar, Director (Training), CBSE, Dr. Srijata Das, Education Officer, CBSE
and Ms. Anjali Chhabra, Assistant Education Officer, CBSE and their teams involved in the development of this
document.
The CBSE-i website enables all stakeholders to participate in this initiative through the discussion forums. Any
further suggestions on improving the portal are always welcome.
Vineet Joshi
Chairman, CBSE

Acknowledgements
Advisory
Shri Vineet Joshi, Chairman, CBSE
Dr. Sadhana Parashar, Director (Training), CBSE
Ideators Classes XI and XII
Prof. A K Bakshi
Dr. N K Sehgal
Prof. Kapil Kapor
Ms. Renu Anand
Dr. Barkatullah Khan
Ms. Avnita Bir

Conceptual Framework
Shri G. Balasubramanian, Former Director (Acad), CBSE
Ms. Abha Adams, Consultant, Step-by-Step School, Noida
Dr. Sadhana Parashar, Director (Training), CBSE

Ms. P Rajeshwari
Ms. Gyatri Khanna
Mrs. Anita Makkar
Prof. Biswajit Nag
Dr. Jacqueline Symss
Ms. Usha Sharma

Dr. Niti Nandini Chatnani

Dr. Anil K Bali
Dr. Preeti Tewai
Dr. Deeksha Bajpai
Mr. S K Agarwala

Ms. Neeta Rastogi

Dr. Anshu
Dr. Rajesh Hassija
Ms. Mukesh Kumar
Dr. Om Vikas

Material Production Groups: Classes XI-XII

English :
Ms. Gayatri Khanna
Ms. Renu Anand
Ms. P Rajeshwary
Ms. Sandhya Awasthi
Ms. Manna Barua
Ms. Veena Bhasin
Ms. Urmil Guliani
Ms. Sudha Ravi
Mr. Anil Kumar
Ms. Vijaylaxmi Raman
Ms. Neerada Suresh
Ms. Himaal Handoo
Chemistry :
Dr. G S Sodhi
Dr. Vimal Rarh
Dr. Shalini Baxi
Dr. Vinita Arora
Dr. Vandana Soni
Ms. Charu Maini
Ms. Rashmi Sharma
Ms. Kavita Kapoor

Biology :
Dr. Ranjana Saxena
Dr. Neeraja Sood
Dr. P Chitralekha
Ms. Mridula Arora
Ms. Lucy Jad
Ms. Priyanka Choudhury
Ms. Prerna Gosain
Ms. Malini Sridhar

Geography:
Ms. K Jaya
Dr. Preeti Tewari
Ms. Rupa Das
Ms. S Fazal Daoud Firdausi
Ms. Neena Phogat
Ms. Sujata Sharma
Ms. Deepa Kapoor
Ms. Bharti Malhotra
Ms. Isha Kaushik
Mr. Riyaz Khan

Physics :
Dr. B. Biswal
Ms. Namarata Alwadhi
Mr. Dhirender Sharma
Ms. Vandana Banga
Mr. Vivek

Economics:
Mr. S K Agarwala
Ms. Ambika Gulati
Ms. Nidhi Singh
Ms. Malti Modi
Ms. Sapna Das
Ms. Ingur Agarwal
Ms. Shankar Kulkarni

Mathematics :
Dr. Sushil Kumar
Mrs. Monica Talwar
Mrs. Charu Dureja
Mrs. Seema Juneja
Dr. H K Bhatia
Dr. Sushma Bansal

Accountancy :
Mr. S S Sehrawat
Dr. K Mohna
Dr. Balbir Singh
Ms. Bhupendra Kriplani
Ms. Shipra Vaidya
Mr. Sandeep Sethi
Business Studies :
Dr. S K Bhatia
Ms. Meenu Ranjan Arora
Mrs. Shegorika
Mr. Sandeep Sethi
Ms. Usha Sharma
Ms. Komal Bhatia
Ms. Ravisha Aggarwal
ICT :
Mr. Mukesh Kumar
Ms. Nancy Sehgal
Ms. Purvi Srivastava
Ms. Gurpreet Kaur

Cheif - Coordinators: Dr. Srijata Das, E.O

Coordinators:
Ms. Sugandh Sharma, EO

Dr Rashmi Sethi, EO

Ms. S. Radha Mahalakshmi, EO Mr. Navin Maini, RO (Tech)

Ms. Madhu Chanda, RO (Inn) Shri Al Hilal Ahmed, AEO

Ms. Anjali Chhabra, AEO

Shr. R. P. Singh, AEO

Shri R. P. Sharma,
Consultant (Science)

Ms. Reema Arora

Consultant (Chemistry)

Mr. Sanjay Sachdeva, S O

Ms. Neelima Sharma,

Consultant (English)

Content
Preface
Acknowledgment
1.

Introduction

2.

Uses of Incomplete Records

3.

Limitations of Incomplete Records

4.

Worksheet - 1

11

5.

Statement of Affairs Method or Net Worth Method

14

6.

Comparison between Double Entry System and Incomplete

14

System of Recording.
7.

Statement of Profit or Loss for the Year Ended..

21

STUDENTS MANUAL
UUNIT 9 ACCOUNTS FROM INCOMPLETE RECORDS

So far you have studied that how a business unit ascertains profit/loss of the
business by following the process of Double Entry Book-Keeping.
But it is not necessary to strictly maintain Double Entry System to know the
profit/loss and financial position of a concern.
Many small scale enterprises do not maintain the complete records of their
transactions but they also have to ascertain the profit/loss of their business and
its financial position. So to ascertain the profit/loss and know about the financial
position of the business without keeping the records according to Double Entry

Book-keeping

is

termed

as

Accounts

from

Incomplete

Records.

So, Incomplete Records is a system in which some transactions are recorded with
all their proper debits and credits whereas in some other cases, no entry or only
one side of a transaction is recorded. Generally records of cash and personal
accounts of debits and creditors are properly maintained whereas records related
to assets and liabilities, expenses and revenues are not recorded completely but
are recorded partially. This is the reason why this system is called a system of
Incomplete Records OR Accounts from incomplete records. It may be defined as
follows :

According to Kohler
"A system of book-keeping in which as a rule only records of cash and of
personal accounts are maintained, it is always incomplete double entry varying
with the circumstances".
It is important to note here that in this system some times we follow the double
entry system by keeping records of both debits and credits and some times we
do not follow this. So this incomplete system of recording cannot be called a
Single Entry System, because in this incomplete system of recording we mix the
approach of the Double Entry and Single Entry.
So this system of incomplete records is a system where :
(1)

Both the aspects of some of the transactions are kept.

(2)

Only one aspect of some of the transactions is kept.

(3)

No aspect of some of the transactions is kept.

Therefore it is a system of Incomplete Records.

It would be extremely helpful for you to make a list of 5 very small
businesses around your locality or on the way to school.
Typical examples of small businesses would be of

The tea shop,

Dhobi,

Pan and cigarette shop,

Flower stall,
A small snack shop or a canteen.

A cobbler,
A small tailor shop

Identify how they maintain records of:

Cash sales,
Credit sales
Cash purchases
Credit purchases
and Stock.

Fill the following for home work. It can even be an imagination

Name of the shop.
____________________________________________________________
Name of the owner.
____________________________________________________________
Nature of business.
_______________________________________ service, trading or else
Number of employees.
____________________________________________________________
Which books of accounts does he maintain?
[Journal, Cash book, Purchase book, Sales book, Trading Account, P and
L Account, Balance Sheet]
Does he know anything about depreciation, stock registers?
Does he have a bank account?
Now evaluate why these businesses do not want to complete their
Accounts?
What sort of problems do you see them facing in the future?
Are the Accounts systematic?
Does he know his Assets and liabilities?

How does he calculate Profit and Losses?.

What are the advantages and disadvantages of maintaining Accounts in
such a manner?

SUGGESTED ANSWERS

ADVANTAGES
Simple to follow.
Suitable for small concerns.
Flexible.
Inexpensive method.
DISADVANTAGES
No accuracy of profits.
No comparison.
Future plans cannot be based as no statements.
No accuracy.
True value of assets cannot be judged.
No internal check.

Features / Characteristics of Incomplete Records.

The main features of Incomplete Records are as follows :
(1)

It is an unsystematic method of recording transactions.

(2)

Only records of cash transactions and records of personal accounts are

maintained properly.

(3)

There is no information related to revenue/gains and expense / losses,

assets and liabilities in these records.

(4)

Sometimes owner's personal transactions are also recorded in the Cash

Book.

(5)

Accounts of different organisations are not comparable due to no

uniformity in maintaining records.

(6)

Due to lack of complete information the business unit has to depend on

original vouchers to collect necessary information. For example to collect
information related to total sales business will have to depend on the
Original Vouchers of Credit Sale. In the same way Credit Purchase will be
known by Purchase Vouchers.

(7)

Profit/Loss cannot be calculated accurately. Only an estimated profit/loss

can be known. Similarly Balance Sheet may not reflect the complete and
true position of assets and liabilities.

1. USES OF INCOMPLETE RECORDS

(1)

Simple Method. No special knowledge is required to maintain records

so is a simple method.

(2)

Suitable for Small concerns. This method is suitable where business is

of small scale and number of transactions are not much. Similarly they
maintain very few fixed assets.

(3)

Flexible Method. As this method does not follow the strict rules of
double entry system so the method can change accordingly to the
requirements.

(4)

Profits can be Estimated Easily. As there are less number of

transactions, profits / losses can be estimated easily. Moreover by
comparing financial position of the business at the close of the
accounting period with the financial position of business in the
beginning of the accounting period profits / losses can be estimated
easily.

(5)

Less Expensive. Number of accounts maintained in this system are

less as compared to Double Entry System. So this system is not
expensive.

2. LIMITATIONS OF INCOMPLETE RECORDS.

The mechanism of maintaining incomplete Record has some limitations due

to insufficient information. These are as follows :
(1)

Only Estimated Profit / Loss is Known. Trading and profit and loss
account cannot be prepared so it is difficult to know the accurate profit
and loss so profit / losses can only be estimated.

(2)

Comparative Study is Difficult. Comparison with other concern is not

possible if they are following Double Entry System or even comparison
within the concern is not correct due to incomplete information of
transactions of business.

(3)

Not Suitable for Planning and Control. For proper planning a

business needs complete information about the accounts. But due to
incomplete system of information planning cannot be done properly
and as we know controlling depends on planning so in the absence of
proper planning controlling will also be not effective.

(4)

Difficulty in knowing the Arithmetical Accuracy. In case of Double

Entry Book-keeping every transaction is debited as well as credited
with the same amount so we can easily check the arithmetical accuracy
but that can't done in this system, because preparation of Trial-Balance
is not possible in this system.

(5)

Inaccuracy in Financial Position of a Business. Due to inaccurate

profit/loss and lack of information about the assets and liabilities,
financial position of a business cannot be known accurately.

(6)

Difficulty in knowing the True value of Business. Due to improper

recording of assets and liabilities it is difficult to find out the true value
of the business.

10

(7)

Internal Check is not Possible. Due to lack of complete information

there is always a possibility of errors and frauds. Moreover detection
and their rectification is very difficult.

Not Acceptable. To calculate income tax, the income tax authorities convert this
system into Double Entry System to calculate income tax accurately so we can
say this system is not accepted by the income tax authorities.

WORK SHEET No. 1

1. List two advantages of Single entry system

_____________________________________________________________________
_____________________________________________________________________
[simplicity, cost effective, specialised knowledge not required, saves time,
easy ascertainment of profit and loss.]
2. List two disadvantages of Single entry.
_____________________________________________________________________
_____________________________________________________________________
[lack of arithmetical accuracy, no control over assets, no internal check,
comparison with previous year not possible, incomplete and unscientific]
3. Difference between Single entry and Double entry
_____________________________________________________________________
_____________________________________________________________________

11

[single not scientific, trial balance not prepared, not authentic.

Double records both aspects, scientific, trial balance can be prepared, is
scientific, accepted by law]
4. Difference between Balance Sheet and Statement of affairs
_____________________________________________________________________
_____________________________________________________________________
[Balance Sheet - Capital Account is prepared separately, aim is to ascertain
financial position of the enterprise, both sides of the Balance Sheets
agree automatically if no omission, capital is the balancing figure.It is
prepared to ascertain capital, if both sides do not agree it is difficult to dentify
omissions. Such a statement of assets and liabilities is known as
(1)

Statement of Affairs

Comparison between Double Entry System and Incomplete System of

Recording.
After analysing both the system we may observe the following differences :
(1)

Double Entry follows the recording of both aspects of a transactions.

But in this system both aspects for some transactions, one aspect or no
aspect for other transactions are followed.

(2)

All three accounts i.e. Personal, Real and Nominal are maintained in
Double Entry System. Only Personal Account and Cash Book is
maintained in this system.

(3)

Trial-balance can be prepared in Double Entry System so arithmetical

accuracy can be checked.
But in this system no arithmetical accuracy can be checked but not
possible to prepare trial-balance.

(4)

In Double Entry correct profit / loss can be calculated.

But in this system profit / loss can only be estimated.

12

(5)

Double Entry system is used by almost all the business.

Where as this system is only followed by small scale business and
institutions.

(6)

Double Entry system is considered as an authentic system by the court,

moreover it is accepted by income tax authorities also.
Whereas court does not consider this system as an authentic system
and income tax authorities also do not accept this system for incometax purpose.

5. ASCERTAINMENT OF PROFIT / LOSS BY PREPARING STATEMENT

OF AFFAIRS METHOD OR NET WORTH METHOD.

Whether business is keeping incomplete records for their business or

maintaining complete records according to Double Entry Book-keeping, in both
the cases the business wants to know the resulot of its operations in the form of
profit/loss of the business.
Now if the business is maintaining accounts according to the incomplete system,
then how will the result of the

business be ascertained or how will the

profit/losses be known to assess the efficiency and success/failures of business.

Therefore, to know the results of business there is a need for preparing the
financial statements to disclose :

13

(1)

The profits earned or losses incurred during a given period of time and

(2)

The amount of assets and liabilities at the closing date of an accounting

period.

To know all this, one has to use the available information in the incomplete
records to find out the profit/loss and financial position of an enterprise at the
end of the year. There are two ways to find out the results of the business :
(1)

Preparing statement of affairs or net worth method.

(2)

Preparing Trading and Profit and Loss Account and the Balance Sheet by
completing the records called Conversion Method.

Note :
As per our syllabus, according to CBSE curriculum for Class XI only Statement of
Affairs or Net Worth method is discussed here.

I. Statement of Affairs Method

Or
Net Worth Method
According to this method, two statements of affairs i.e. statement of assets and
liabilities as at the beginning and at the end of the relevant accounting period are
prepared to calculate the amount of change in capital during the period.

14

NEED
Normally when would a business man want to know the worth of his business

[when he has to shift base, sell his business apply for a loan needs to get
someone interested in his business maybe for expansion .]
He is in no condition to prove the sales and hence unable to derive the value of
goodwill for the present value of his business.

15

In order to do that he has to understand the profits of the previous years.

FUN ACTIVITY HELP THE TEACHER TO MAKE A SCRIPT OF THE
FOLLOWING.

A small activity with the following script can be enacted.

Required
A board, a chalk, three volunteers from the class.

One --- Owner of a shop --Mr A .

Two --- Buyer Mr. B.
Three -- Student to write on the board.
Mr B wants to buy the business of Mr A.
Mr A has been running his business for the past 10 years, he wants to sell it as he
wants to go back to his village.
Mr A has never maintained any accounts, hence he is not able to justify the
profits of the past 10 yrs.
The student hears their conversation and offers to help.

16

Student to Mr A -----Can you tell me the status of your business today.

He draws a Balance Sheet on the board and notes what Mr A has to say.
[he is actually drawing the Balance Sheet as on that day ]
The missing figure of that shall be the Capital.
The statement he collects can be like
Bank balance,
Cash in hand,
Furniture,
Stock,
Debtors
and other assets.
On the Liability side he should have
Creditors,
Outstanding expenses
The difference becomes the Capital.[CLOSING]
-----------------BALANCE SHEET [CLOSING]------------------------------------------------

CREDITORS

5,000

BANK

15,000

CASH

5,000

OUTSTANDING 3,000
EXPENSES
CAPITAL

|
|

[ 77,000]

bal fig

DEBTORS

15,000

FIXED ASSETS

50,000

--------------------------

----------

85,000

85,000

------------------------

Then he asks Mr A
What was his status when he started the business
Mr A ------ Well I had brought 10,000 from home and I had purchased

17

furniture of around 2000 and started this business with

cash 8000 [the capital amount remains at 10,000]
Accordingly
Opening Capital +Profit = Closing Capital
10,000 +profit =77,000
therefore Profit is 67,000
Mr A [seems confused]

Is that all I have earned in the past ten years?

Then he remembers that he was withdrawing Rs 3,000 every month for his
personal and house hold expenses.
The student then derives another formula on the board
Opening Capital + Profit -Drawings =Closing Capital
10,000+profit-[3000x120 months]=77,000
10,000+Profits-3,60,000 = 77000
Profit =3,60,000+77,000-10,000=4,23,000
Mr A aah, that is the profit I have made in the past ten years
Hence now Mr B can think of how much to offer him
It is a nice link to introduce the concept of goodwill later for class 12
The script can go on.
Statement of Affairs.
It should be noted that this Statement of Affairs is similar to Balance Sheet
because the statement also shows liabilities on the left side and assets on the right
hand side.
But even then it cannot be termed as Balance Sheet because date contained in
this statement of affairs are based on the relevant document and physical count
whereas in Balance Sheet the date is totally based on Ledger Balance.

18

Format of Statement of Affairs

Statement of Affairs as at
Liabilities

Amount

Assets

Amount

(Rs.)
Bills Payable

(Rs.)

XXX Land

and

XXX

Building
Creditors

XXX Machinery

XXX

Outstanding

XXX Furniture

XXX

Expenses
Capital *
(Balancing Figure)

Stock

XXX

Debtors

XXX

Cash and Bank

XXX

Prepaid Expenses

XXX

XXX

Capital *
(Balancing

XXX

Figure)
XXX

XXX

Note :
* Capital may be either in the liabilities side or the assets side depending on the
total of both sides. If total of assets side is more, then capital will be in the
liabilities side or vice-versa.
Calculation of Profit/Loss under Statement of Affairs Methods is as follows:

19

To calculate profit/loss, we compare opening capital (which will be calculated by

preparing opening statement of affairs) with closing capital (which will be
calculated by preparing closing statement of affairs). If closing capital is more
than the opening capital then the balancing figure will be profit or vice-versa.
This profit or loss is to be adjusted with the withdrawals made by the owner or
any fresh capital introduced by him during the accounting period for the
purpose of finding out the net profit earned or net loss incurred during the year.
So profit / loss during the year may be calculated by the following equation:
Profit or Loss = Capital at the end Capital at the beginning + Drawings made
during the year - Capital introduced (additional capital) during the year
Statement of Profit or Loss for the given period may be shown as follows :

20

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED .....

Amount

Particulars

(Rs.)
Capital as at the end of year (calculated from statement of
affairs as at the end of year)

xxx

Add: Drawings during the year.

xxx

Less: Additional capital introduced during the year

xxx

Adjusted capital at the end of year

xxx

Less: Capital as at the beginning of year

(calculated from statement of affairs as at the beginning of

xxx

year)
Profit or loss made during the year

xxx

Now this calculation of Profit / Loss under this incomplete system of recording
may be better understood with the help of the following illustrations.

21

For a healthy start,

TICK THE RIGHT ONE.
1. Generally, incomplete records are maintained by a:
(a) trader

(b) Society

(c) Company

(d) Government

2. When closing capital is greater than opening capital, it denotes:

(a) Profit
(b) Loss
(c) Profit if there is no introduction of fresh capital
(d) No profit no loss
3. When closing capital is less than opening capital, it denotes:
(a) Profit

(b) Loss

(c) Loss if there is no drawing

22

(d) None .

Fill in the blanks

4. Fill in the blanks with appropriate answer given in the brackets against each
question:
(a) In the case of incomplete records, a __________ picture of all transactions
will be available. (full/partial)
(b) To find out the profit, closing capital is to be adjusted by ____drawings
and _____ introduction of fresh capital. (adding, deducting)
(c) Closing capital is Rs. 1,000. Opening capital was Rs. 500. But profit is Rs.
700. So, there must be a _____ of Rs. 200 during the year. (drawing, fresh
capital)
(d) Credit purchases can be ascertained as the balancing figure in the
________ Account. (Debtors / Creditors)
(e) The amount received from debtors can be traced from ____ summary.
(cash / purchase)
(f) Increase in capital at the end of the period represents ___________ (Loss /
Profit).
5. Fill in the blanks:

(a)

Opening
Capital
Capital

Closing
WithCapital

fresh
drawal

Profit

Rs.
5,000

Rs.
7,000

Rs.
1,000

Rs.
500

Rs.
?

(b)

3,000

600

400

500

(c)

8,000

1,200

1000

900

(d)

10,000

15,000

2000

4,000

(e)

20,000

25,000

1,800

2,800

23

Illustration 1 Calculation of Profit without adjustments

Mr. John started a business of a small printing press on April 1, 2007 with a
capital of Rs. 75,000. John did not maintain his Books of Accounts on the basis of
Double Entry During the year he introduced additional capital of Rs. 22,500. He
has also withdrawn Rs. 15,000 for his personal use.
On March 31, 2008, his assets and liabilities were as follows :
Sundry Creditors Rs. 1,35,000, Sundry Debtors Rs. 1,88,400, Stock Rs. 37,125,
Cash in hand Rs. 37,470. Calculate profit or loss made by Mr. Arvind during the
year by using Statement of Affairs Method.

Solution:

Books of Mr. John

Statement of Affairs as on March 31, 2008
Liabilities

Amount

Assets

(Rs.)

(Rs.)

Sundry Creditors

1,35,000 Cash-in-hand

Capital (Balancing Figure)

1,27,995 Debtors
Stock
2,62,995

24

Amount
37,470
1,88,400
37,125
2,62,995

Statement of Profit or Loss for the year ended March 31, 2008
Particulars

Amount
(Rs.)

Capital as on March 31, 2008 (as calculated by preparing

statement of affairs at the end)

1,27,995

Add: Drawings during the year.

15,000
1,42,995

Less: Additional capital introduced during the year

Adjusted capital at the end of year (i.e. on March 31, 2008)
Less: Capital in the beginning of the year i.e. April 1, 2007
Profit made during the year

(22,500)
1,20,495
75,000
45,495

Illustration 2

Mr. Ronald run a small scale business of ready made Garments. He was
maintaining only some records just to know the estimate of profit or loss from
the business. On April 1, 2005, he had the following assets and liabilities :

25

Furniture and Fittings

= Rs. 2,20,000

Building

= Rs. 6,00,000

Stock

= Rs. 70,000

Cash at Bank

= Rs. 80,000

Cash in Hand

= Rs. 12,716

Dues from Customers (Debtors)

= Rs. 30,000

Dues of Creditors

= Rs. 80,000

Outstanding Wages

= Rs. 16,408

He also paid Rs. 9,600 p.m. school fee of his children from the business. He had
also introduced Rs. 18,000 during the year as additional capital.
On March 31, 2006 his position was as follows :
Furniture and Fittings

Rs. 2,50,000

Buildings

Rs. 6,00,000

Stock

Rs. 60,000

Cash at Bank

Rs. 65,000

Cash in Hand

Rs. 23,816

Dues from Customers (Debtors)

Rs. 24,700

Dues to Creditors

Rs. 78,816

Calculate the profit made by Mr. Ronald during the year by Statement of Affairs
Method.

26

Solution:

Profit made during the year

1,25,592

Illustration 3
Suzanne started a business with Rs. 3,12,000 on January 1, 2007. He borrowed Rs.
2,34,000 from the bank at 12% p.a. interest. Additional amount introduced during
the year in the business was Rs.4,68,000. At the end of the year his position was
as follows :
(1)

Cash in hand

Rs.
23,400

(2)

Cash at Bank

10,14,000

(3)

Car

2,00,000

(4)

Debtors

1,12,000

(5)

Creditors

1,40,400

(6)

Amount Withdrawn from the Business for Personal use

14,040
p.m.

(7)

Loan from Bank at 12% p.a.

2,34,000

(8)

Accrued Interest on Loan @ 12% p.a. for one year.

Find out his profit from the business for the year ended December 31, 2007.
Solution :

27

Books of Miss Suzane

Statement of affairs as on December 31, 2007
Liabilities

Amount

Assets

Amount

(Rs.)
Loan from Bank

(Rs.)

2,34,000 Cash-in-Hand

Accrued Interest*

23,400

Cash-at-Bank

10,14,000

28,080 Debtors
Creditors

1,40,400 Car

Capital (Balancing Figure)

9,46,920

1,12,000
2,00,000

13,49,400

13,49,400

Statement of Profit or Loss for the year

Ended December 31, 2007
Particulars

Amount
(Rs.)
9,46,920

Capital as on December 31, 2007

Add: Drawings during the year (14,040 x 12)

1,68,480
11,15,400

Less: Additional capital introduced during the year

Adjusted Capital as on December 31, 2007
Less: Capital as on April 1, 2007

4,68,000
6,47,400
3,12,000

Profit made during the year

3,35,400

Working Note :
* Accrued interest on loan is a liability so it will be shown in the liability side of
the Balance-Sheet.
Calculation of Profit under Incomplete System of Recording when some other
adjustments are also given. The following procedure will be followed.

28

First Step. In this case first of all we will calculate profit/loss of the business
during the year as we have calculated earlier.
Second Step. Now this calculated profit/loss will be adjusted according to given
adjustments in the following ways :
Deduct all those items which result in increase in expenses like depreciation,
outstanding expenses, interest on capital, interest on loans, provisions for
doubtful debts, bad debts etc.
Similarly Add all those items which result in the increase in incomes like prepaid
expenses, interest on investments.
After deducting and adding the items ion the calculated profit/loss we will be
Net Profit/Loss.
Third Step. Now closing statement of affairs is prepared again but now it will be
prepared after taking all the adjustments into consideration. This repeated
statement of affairs may also be called a Balance-Sheet because it is prepared
after all the adjustments have been taken into consideration.
Important Note.

29

In the repeated closing statement of affairs we will take opening capital.

Additional capital will be added to it and drawings during the year will be
deducted and net profit (after adjustments) will be added to this.
Now this preparation of adjusted statement of affairs could be better understood
with the help of the following illustrations.

Illustration 4 Calculation of Profit with adjustments

30

Mr. James does not keep his records on the basis of double entry. But he wanted
to know the results of his business in the form of profit/loss of the business. For
that purpose the following information is available from his books.
Particulars

Dec. 31, 2007

Dec. 31, 2008

Cash-in-Hand

6,000

24,120

Cash-at-Bank

67,700

93,800

Inventory

26,800

46,900

Debtors

20,000

53,600

Creditors

6,700

10,720

Bills Receivable

6,800

16,080

Bills Payable

2,680

8,040

Furniture

5,360

32,160

Machinery

26,800

46,900

Motor Van

--

80,400

During the year he introduced Rs. 26,800 in his business and has withdrew Rs.
80,400 for his personal use. Charge depreciation on the following assets.
Furniture @ 10% p.a.
Machinery @ 20% p.a.
Motor Van @ 5% p.a.

31

Rent is outstanding for Rs. 4,824

Solution :

Statement of affairs as on December 31, 2007

Liabilities

Amount

Assets

(Rs.)

Amount
(Rs.)

Creditors

6,700 Cash-in-Hand

6,000

Bills Payable

2,680 Cash-at-Bank

67,700

Capital (Balancing Figure)

1,50,080 Inventory
Debtors

26,800
20,000

Bills Receivable

6,800

Furniture

5,360

Machinery

26,800

1,59,460

1,59,460

Statement of affairs as on December 31, 2008

Liabilities

Amount

Assets

(Rs.)
Creditors
Bills Payable
Capital (Balancing Figure)

Amount
(Rs.)

10,720 Cash-in-Hand

24,120

8,040 Cash-at-Bank

93,800

3,75,200 Inventory

3,93,960

32

46,900

Debtors

53,600

Bills Receivable

16,080

Furniture

32,160

Machinery

46,900

Motor Van

80,400
3,93,960

Statement of affairs as on December 31, 2008

Particulars

Amount
(Rs.)

Capital as on December 31, 2008

3,75,200

Add : Drawings made during the year

80,400
4,55,600

Less : Additional capital introduced during the year

Adjusted Capital as on December 31, 2008
Less : Opening Capital (Capital as on December 31, 2007
Profit before Adjustment

26,800
4,28,800
1,50,080
2,78,720

Adjustment
Less: Depreciation

16,616
2,62,104
Less: Rent Outstanding

4,828

Net Profit after Adjustments

2,57,280

33

Balance Sheet as on December 31, 2008

(Statement of Affairs as on December 31, 2008 after adjustment)
Liabilities

Amount

Assets

Amount

(Rs.)
Creditors

(Rs.)

10,720 Cash-in-Hand

24,120

Bills Payable

8,040 Cash-at-Bank

93,800

Outstanding Rent

4,824 Inventory

46,900

Capital (31.12.2007)
Rs.

Debtors

53,600

Bills Receivable

16,080

1,50,080

Rs.

Add : Additional
Capital

Furniture
26,800

- Depreciation

1,76,880

Machinery

Add : Net Profit

(Adjusted)

Drawings

32,160
3,216

28,944

Rs.
46,900

2,57,280

- Depreciation

4,34,160

Motor Van

80,400

9,380

37,520

Rs.
8,400

- Depreciation

4,200

3,53,760

76,380

3,77,344

3,77,344

Note :
It may be noted that while preparing statement of affairs after adjustment
(Balance-Sheet) opening capital will be taken after adding additional capital and
deducting drawings and at last adjust Net Profit is added to this capital.

34

Illustration 5
Mukesh, a businessman does not maintain records of his business on the basis of
Double Entry. With the help of the following information find out his profit of
business for the year ended December 31, 2006 and also prepare Balance Sheet on
that date.
Particulars

Dec. 31, 2005

Cash-in-Hand

Dec. 31, 2006

7,800

31,200

Bank-Overdraft

39,000

---

Stock-in-Trade

64,000

1,20,000

Sundry Debtors

88,400

2,18,400

Sundry Creditors

41,600

67,600

Furniture

52,000

78,000

Office Equipments

65,000

1,30,000

Bank Balance

40,000

88,000

35

He introduced a fresh capital of Rs. 1,04,000 during the year and withdraw Rs.
13,000 per month for personal use. There were bad-debts of Rs.2,600. Provision of
doubtful debts is made at 5% on debtors. Rent of Rs.3,120 was outstanding.
Insurance of Rs. 910 was prepaid. Depreciation on furniture and office
equipment was charged @ 10% p.a.

Solution :
Adjustment
Less : Depreciation
(i)
20,800

(ii)

Less : Bad-Debts

2,600

Provision for doubtful debts

13,390

Less: Outstanding Rent

3,120

Add: Prepaid Insurance

910

Net Profit after adjustments

3,77,000

36

Balance Sheet as on December 31, 2006

Liabilities

Amount

Assets

Amount

(Rs.)

(Rs.)

Sundry Creditors

67,600 Cash-in-Hand

31,200

Rent Outstanding

3,120 Bank-Balance

8,000

Capital as on Dec. 31, 2005

Rs.

Rs. 2,36,600
Add: Addition
Capital

1,04,000

Sundry Debtors

2,18,400

Less : Bad-Debts

2,600

3,40,600
Less : Drawings

2,15,800

1,56,000

Less : Provision for

doubtful debts

2,05,010

10,790
Add: Net Profit
(Adjusted)

Rs.
3,77,000

Furniture

= 78,000

Less : Depreciation

70,200

7,800
Office Equipments
Rs. 1,30,000
Less : Depreciation

1,17,000

13,000
5,61,600 Prepaid-Insurance
6,32,320

910
6,32,320

37

Illustration 6

Rose a trader, does not keep proper books of account for his business. From the
following information ascertain his profit or loss for the year ended March 31,
2007 and also prepare his Statement of Affairs as on that date.
Particulars

April 1, 2006

March 31, 2007

(Rs.)

(Rs.)

Stock-in-Trade

30,060

32,580

Sundry Creditors

29,000

34,560

Sundry-Debtors

20,160

19,080

450

2,520

33,280

Nil

Furniture

2,700

2,700

Scooter

3,420

Nil

Nil

5,220

Cash-in-Hand
Bank-Overdraft

Bank Balance

Rose has withdrawn Rs. 360 p.m. from the business for his personal use. 10%
depreciation is to be charged on furniture.
Rs. 1,080 was considered as irrevocable amount from debtors and 5% provision
was created for doubtful debts. Rs. 360 provision is created for Bills Receivable.

Solution :

38

Books of Rose
Statement of Affairs as on April 1, 2006
Liabilities

Amount

Assets

(Rs.)

Amount
(Rs.)

Sundry Creditors

29,000 Cash-in-Hand

Bank-Overdraft

33,280 Sundry Debtors

20,160

Capital (Balancing Figure)

23,310 Bills Receivable

28,800

Stock-in-Trade

450

30,060

Furniture

2,700

Scooter

3,420

85,590

85,590

Statement of Affairs as at March 31, 2007

Liabilities

Amount

Assets

(Rs.)

Amount
(Rs.)

Sundry Creditors

34,560 Cash-in-Hand

2,520

Capital (Balancing Figure)

36,540 Cash-in-Bank

5,220

Sundry Debtors

19,080

Bills Receivable

9,000

Stock-in-Trade

32,580

Furniture
71,100

2,700
7,100

39

Statement of Profit/Loss for the year ended March 31, 2007

Particulars

Amount
(Rs.)

Capital as on March 31, 2007

36,540

Add: Drawings during the year Rs. (360 x 12)

4,320
40,860

Less: Capital as on April 1, 2006

23,310

Profit before adjustments

17,550

Adjustment
Less: Depreciation 10% of furniture
(270)
Less: Bad-Debts

= 1,080

Less: Provision for doubtful debts

= 19,080

(1,080)

1,080
(900)
Less: Provision for Bills Receivable

(360)

Net Profit during the year

14,940

40

Statement of Affairs as at March 31, 2007 (After adjustments)

Liabilities

Amount

Assets

Amount

(Rs.)
Sundry Creditors

(Rs.)

34,560 Cash-in-Hand

2,520

Cash-in-Bank

5,220

Capital as on April 1, 2006

= Rs. 23,310
Less : Drawings

Sundry Debtors

4,320

19,080

18,990
Add:

Net

Profit

- B. Debts
33,930

1,080
18,000

14,940
- Provision

900

17,100

Bills Receivable
Rs. 9,000
- Provision

360

Stock-in-Trade
Furniture
-Depreciation

8,640
32,580

2,700
-

2,430

270
68,490

41

68,490

CENTRAL BOARD OF SECONDARY EDUCATION

Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110 092 India